Markets don’t seem to care about Spain’s Catalan crisis for at least three good reasons:
1. Catalonia’s inability to push through with independence is a key reason for the general optimism, according to Claus Vistesen, Chief Euro Zone Economist at Pantheon Macroeconomics
2. Thanks to the European Central Bank’s (ECB) quantitative easing program, the money in Europe is cheap making investors calm
3. The Spanish economy has been one of the strongest performers in the euro area since the recession
Despite the political unrest in Catalonia, Spanish stocks rose 1.7 percent Monday morning. Spain’s IBEX is only down by 0.7 percent since the independence referendum of October 1st and other European markets have been as well slightly affected.
According to Claus Vistesen, Chief Euro Zone Economist at Pantheon Macroeconomics, Catalonia’s will not be able to push through with independence and this is the main reason for the general optimism in the markets, believing it ¨unlikely that Catalonia will go full rogue and try to engineer some kind of hard break from Spain. After all, they don’t have the support of government structure to do that”.
On Friday 27th of October, the Spanish region of Catalonia declared independence from Madrid, while the national government imposed direct rule over the regional government applying the article 155 of the Constitution and called as well for new elections. Spanish shares dipped on the news and 10-year government bond yields hit a session high.
However, markets soon stabilized again. Philippe Gijsels, Chief Strategist at BNP Paribas Fortis, believes that cheap money in Europe, thanks to the European Central Bank’s (ECB) quantitative easing program, is also helping to make investors calm.
“The worse it gets geopolitically, the easier monetary policy will be,” he said, meaning that, in case the political situation worsens, the ECB will step in if necessary to protect the economic recovery in the region.
Furthermore, the Spanish economy has proved to be one of the strongest performers in the euro area since the recession. This give of course more confidence to investors.
Data released Monday morning showed Spain’s economy grew at a pace of 0.8 percent in the third quarter of this year, slightly lower than the 0.9 percent gross domestic product seen in the previous quarter.
According to European Commission’s yearly forecasts, Spain is expected to grow at about 2.8 percent this year.
As a conclusion, Vistesen added: “the easy monetary policy and a general cyclical revival have a lot to do with this relative indifference. If the economy was slowing, it would be a bigger deal I think”.